August 5, 2011

Aug. 4 (Bloomberg) -- For Phillip Swan, forgoing the headaches of flying commercial was worth $146,000 for 25 hours of flight time on a private jet.

“We were just sick and tired of dealing with long lines and problems with privacy going through regular security at airports,” said Swan, chief executive officer of a Bellevue, Washington-based company that makes disposable charcoal EZ Grills. Now Swan, 48, skips the lines and hops aboard a private aircraft with leather seats and grilled beef tenderloin meals. Instead of buying the plane, Swan opted for a jet card, which gives him access to an 8-person Learjet for 25 hours over 275 days.

Fractional ownership of private jets and use of jet cards is on the rise as commercial travel frustrates fliers, despite the high cost, according to interviews with executives at the three largest North American private aviation companies -- NetJets Inc., Flight Options LLC and Flexjet. Shared jets were originally used by smaller and mid-sized corporations, and have expanded to individual travelers as well.

Fractional sales increased almost sixfold in the first quarter compared with a year earlier at Flight Options, while sales of jet cards, a prepaid lease of flight time in 25-hour segments, rose 46 percent. Fractional sales at Bombardier Inc.’s Flexjet, which operates its jet-card program through Jet Solutions LLC, jumped 64 percent.

$111,000 Trip

“To some people it’s worth it to avoid all the security lines and the inconvenience because airline travel right now is this commodity,” said Vitaly Guzhva, associate professor of finance at Embry-Riddle Aeronautical University in Daytona Beach, Florida. “It used to be an experience and now it’s a hassle -- for those people, convenience is more important than value.”

Flying from New York to San Francisco on an 8-person Learjet 45 XR would use about 14 hours or $92,000 from a one year Flexjet 25-hour card, and also cost an additional $19,000 for fuel to total about $111,000. That compares with about $10,000 for four first-class round-trip tickets for the same trip later this month, according to a search on travel website kayak.com. First-class customers generally have access to priority check-in and boarding, expedited baggage service and faster security lines at some airports.

Fractional ownership and jet cards allow access to the perks of private jets without the cost and responsibilities of sole ownership that may include employing pilots, insuring the plane and finding a hangar, said Jordan Hansell, chairman and CEO of Berkshire Hathaway Inc.’s NetJets, which is based in Columbus, Ohio, and has more than 7,000 customers worldwide.

Additional Fees

Fliers who opt for partial ownership generally pay a base price for 50 hours of flight time annually for five years, or a one-sixteenth stake in the plane, which they can sell back after the contract expires. The price varies based on how far the jets can fly on one tank of gas and their size.

That means the cost for the Learjet 45 XR in addition to the $410,000 would include a $9,120 monthly management fee and about $3,700 for in-flight and fuel costs for each hour flown.

‘Painless’ Travel

For travelers looking for less commitment than partial ownership and jet access for one year, a jet card is a better choice, according to Mike Silvestro, CEO of Cleveland-based Flight Options, which has more than 1,300 customers. Flight Options, NetJets and Flexjet all offer jet cards. The purchase price for 25 flight hours ranges from $100,000 to about $300,000 depending on the type of jet, and jet-card users also have to pay hourly flight rates for fuel.

Customers who fly private generally only have to show identification at a check-in counter before boarding a plane. For international flights, they’re required to go through customs. Planes that weigh more than 12,500 pounds must have names of passengers and crew members vetted, Jonathan Allen, a spokesman for the U.S. Transportation Security Administration, said in an e-mail. The Learjet 45 XR weighs about 14,000 pounds.

“The limo service drops you off and within 20 seconds, you’re on the plane, and 45 seconds later you’re heading down the taxiway, ready to take off” said Swan, the EZ Grills executive. The level of service and ease of travel with Flexjet’s jet card “makes the whole experience of getting from point A to point B painless.”

Superbowl Parties

Private aviation companies are offering perks to travelers to maintain existing customers and attract new ones. Flexjet, based in Dallas, provides a program that allows fractional owners to carry over unused hours. Flight Options offers a membership program that gives card users access to the new Phenom 300 jet, which can fly faster, farther and on less fuel than most planes in its class, and NetJets hosts parties at the Superbowl and Masters Golf Tournament.

NetJets was the first to launch a fractional ownership program in 1987, and now has about 285,000 flights a year to more than 170 countries, Hansell said. The majority of customers fly for business reasons, and there is a “sizable minority” who use the service for personal reasons, said Hansell, who declined to provide specific numbers.

Fractional owners at Flexjet include current and former CEOs, who fly private for corporate and leisure travel, said Fred Reid, Flexjet’s president. For many, “business and pleasure kind of blend,” he said.

Fewer Commercial Flights

Travelers have lost accessibility to business hubs and favorite vacation spots as commercial airlines have cut flights amid higher fuel prices and declining corporate travel. Commercial departures from Hartsfield-Jackson Atlanta International Airport, the largest airport in the world by passenger traffic, had declined 3.2 percent in the 12 months ended in April compared with a year earlier and departures from John F. Kennedy International Airport in New York had fallen 4.1 percent.

Aspen/Pitkin County Airport’s departures had dropped 13 percent through April, while departures from Orange County, California’s John Wayne Airport had decreased 9.2 percent and Honolulu International Airport had declined 9 percent.

United Continental Holdings Inc., the world’s biggest airline, said it expects to decrease the number of available seats by 3 percent in the fourth quarter compared with a year earlier, according to a conference call discussing earnings this month. Delta Air Lines Inc., the world’s second-largest carrier, plans to reduce seating by as much as 5 percent in the same period and AMR Corp.’s American Airlines said it will trim available seat numbers next year and close routes.

Airlines Ranked Last

Private planes can fly in and out of commercial airports as well as about 4,800 airports in the U.S. that commercial planes don’t have access to, said Flexjet’s Reid.

“They can go to eight cities in two days,” Reid said.

U.S. commercial airlines ranked last among 47 industries in customer satisfaction, according to the University of Michigan’s American Customer Satisfaction Index released in June. On average, 21.5 percent of major commercial carriers’ flights were delayed this year through May, according to the U.S. Department of Transportation.

“It doesn’t matter if you are a CEO, CFO, you have to go through the same regimen,” said Bijan Vasigh, professor of air transportation at Embry-Riddle.

Spontaneous Vacations

Brazil, Russia, India, China and Nigeria are markets Flexjet may look to for expansion because those countries have increasing numbers of people and companies owning private jets, said Reid.

“When a country gets a critical mass of private jets,” there will be more demand for fractional ownership and jet cards, he said.

Use of private jets usually isn’t exclusive to the primary account holders. Fractional and jet-card owners at NetJets, Flight Options and Flexjet can share access, which allows approved family and friends to fly without the owner.

NetJets can have a plane ready in as few as four hours for fractional owners and for Flexjet, it’s 10 hours, the companies said. Flight Options said it needs notice of eight hours for fractional owners and jet-card users. Fliers may need to provide more advance notice when trying to reserve a plane during peak travel days, such as around holidays or major sporting events.

Swan said if a trip is short, such as to California, he’ll still fly commercial since he doesn’t have to worry about a layover. For longer trips to destinations like Florida or Mexico, or for spontaneous vacations, he said he’ll use his jet card.

“You can take a last minute trip and you don’t have to worry how you’re getting there,” he said.